Commission Orders Construction Cost Overruns Borne by Utility in Matter Involving Accumyn Testimony

Accumyn Consulting recently completed an engagement for a state regulatory agency representing ratepayers in a proceeding to address the rising cost of construction for an electric generating facility. The regulatory commission order concluding the Duke Energy Edwardsport case has reduced ratepayer liability for construction cost overruns by almost $900 million, and capped the costs for the life of the Project, saving ratepayers approximately $2 billion over the next 30 years.

Accumyn experts, Scott Bayley and Robert James, were asked to provide litigation support services to the Indiana Office of Consumer Counselor (OUCC) in a docket proceeding before the Indiana Utility Regulatory Commission (IURC). The matter involved management by Duke Energy of Indiana (Duke) of its engineering and construction for a 630 megawatt Integrated Gasification Combined Cycle (IGCC) power plant under construction at Edwardsport, IN.

Duke had received the Commission’s approval to construct the IGCC facility in 2007 based on an estimated Project cost of $1.98 billion.  An alliance of Bechtel and GE was to design and construct the plant, a first of its kind of its size.

The estimated cost soon increased to $2.53 billion for which a second approval by the Commission was granted in 2009. By early 2011, Duke’s estimated cost was increased again to $2.88 billion, causing the OUCC to join intervenors in recommending that the ratepayer’s liability be capped.

Bayley and James were asked to join in litigation underway by other intervenors and provide an expert report and testimony on the topic of gross mismanagement, if any, based on a review of records illustrating Duke’s performance in its execution of the Project.

Aided by a team of engineers, economists and accountants, Bayley and James conducted a review of the Project’s progress and cost reports, correspondence, and hearing testimony. To enhance research efficiency, Accumyn’s e-Discovery specialist converted almost 8,000 separate documents to searchable format. A joint expert report addressed the Project’s FEED Study; delivery method; contracting approach; project controls program; grey water disposal process; and budget manipulation. The Accumyn Report was submitted by the OUCC as Bayley and James’ direct testimony. Prepared written testimony (a process whereby experts develop their own questions and provide answers to illustrate their opinions) was the format used for responsive testimony.

Cross and re-direct examination of witnesses was conducted at the IURC’s hearing facilities in Indianapolis in front of the Commission Chairman, four Commissioners and a Judge.

Upon review of the Accumyn Report, the OUCC’s chief deputy consumer counselor asked Accumyn to provide additional testimony in response to Duke’s direct testimony on the reasonableness and prudency of its engineering and construction of the Project’s grey water disposal process.  This change resulted in a section of the Accumyn Report discussing Duke’s performance in management of grey water disposal to be addressed in another phase of the IURC hearing process.

Accumyn expert James submitted additional written testimony on Duke’s management of the grey water disposal process in Q&A format. Opinions were presented on its prudence in development of basic engineering and permitting of the disposal process and the related cost impact to the Project; mismanagement issues with development of the process during the Project’s FEED Study; and the project team’s implementation strategy.

Following submittal of this responsive testimony, Duke submitted and Accumyn responded to numerous data requests addressing the prudence of Duke’s conduct and the cost impact to the grey water disposal portion of the Project.  Topics included the quality of research and information relied upon and soundness of assumptions; the hazardous nature of the grey water; the probable outcome due to a known high risk of failure of the permitting process; and the prudence of seeking relief under an amendment to a statutory permitting regulation. James was cross-examined on the grey water section of the Accumyn Report and his responsive testimony in December 2011 and January 2012 during Commission hearings in Indianapolis.

In addition to responding to Duke’s data requests and assisting with preparation of OUCC data requests, Bayley and James prepared written direct and rebuttal testimony addressing mismanagement issues described in their respective sections of the Accumyn Report.  Bayley’s direct testimony addressed budget manipulation, financial reporting and transparency. James’ direct testimony addressed Duke’s adherence to industry standards and practices for project and construction management. Both submittals consisted of brief summaries of details within the Accumyn Report. Separate, more detailed rebuttal testimony by Bayley and James discussed issues raised by Duke witnesses in response to the Accumyn Report. Bayley addressed budget manipulation issues. James addressed Duke’s mismanagement of its FEED Study; its project delivery method; its flexible contracting approach; its project controls function; and its grey water disposal method. Accumyn also assisted OUCC’s counsel with preparation of cross-examination topics to be addressed at hearings in Indianapolis conducted between November 2011 and January 2012.

Accumyn expert James was cross-examined on prudency of the grey water disposal design and permitting process during the November hearing, and on the Accumyn Report and his rebuttal testimony during the January hearing.

On December 27, 2012 the IURC issued its final order addressing nearly $900 million in cost overruns. The order included over $835 million in construction cost overruns to be b